Every Which Way But Loose

The gold rush is on
By Adrian Douglas
The article that appeared in the Financial Times on Thursday and was dispatched by GATA was very significant:

http://www.ft.com/cms/s/0/077b765c-c77c-11dd-b611-000077b07658.html?ncli...

What was especially significant was the article's necessity to supply disinformation:
"Traders have been hearing talk that the gold market could face a potential squeeze at the end of this year if market participants with futures position on New York's Comex exchange decide not to roll over their positions, because of concerns about counterparty risk and opt for physical delivery instead. But dealers dismissed the threat of a squeeze, pointing out that Comex gold stocks stand at 8.5 million ounces, well above the five-year average of almost 6 million ounces. ..."

The 8.5 million ounces cited here are the total Comex inventory. This includes gold that belongs to customers who are storing it on the exchange. The amount that is registered to dealers, and therefore available for delivery, is only 2.846 million ounces. The delivery notices that have been issued so far in December total 1.26 million ounces, which is 44 percent of the available deliverable gold. This assumes that the gold registered to dealers is totally unencumbered, which is not necessarily a good assumption in the fuzzy accounting world of Wall Street.

What is very telling is that the reason for investors taking delivery is given as "counterparty risk." They could have said that it was due to investors "wanting the safe haven of gold in times of financial crisis," etc. Stating unequivocally "counterparty risk" as the reason for high delivery demands is the first reference to the possibility of Comex going into default that has appeared in the mainstream press. It is also of note that it appeared in the Financial Times, which is traditionally anti-gold.

Without a doubt the hammering down of the paper gold price made many leveraged speculators head for the exits, as demonstrated by the 50 percent reduction in open interest. But the investors who remain are not leveraged, and unfortunately for the Gold Cartel they are taking delivery from the Comex. Talk of a squeeze due to "counterparty risk" will no doubt encourage more investors to take delivery.

Make no mistake about this. We are seeing the early signs of a gold rush like the world has never seen before. Investors do not take physical delivery of gold to sell it back for a 10 percent profit. The inflation-adjusted high of gold in 1980 is $2,500 today. But today we are in the midst of an unprecedented global financial crisis. Simultaneously every country is hell-bent on currency destruction as an antidote to too much debt creation.

The precious metals that are being taken off the market will not see the light of day again for a long time. The central banks have almost stopped selling gold and mine supply is dropping year after year.

How many times do you get warning of what will likely be the trade of the century? There is no such thing as a risk-free trade, but I think this is as good as it gets.

Investors should take physical delivery and not be leveraged. This way you will make sure you are around for payday and you will put more pressure on the shorts who have fraudulently sold gold and silver that they are unable to deliver.

Whether there is a massive squeeze on the Comex in December or February is irrelevant. The gold rush is on. When gold and silver become unavailable, prices will have to go up by multiples. The beaten-up mining sector will reach new highs. When the precious metals are not available in bullion form, the next best thing for investors will be companies that dig them out the ground.
http://gata.org/node/6997

Desperate to uncover Gold to meet mounting delivery requests NYMEX has just increased margin on silver and gold: gold at $5808, silver at $8640. This is unlikely to shake few apples from the tree as there are few left holding paper gold on the margin at the CRIMEX as "counter party risk" precedes an outright default in the paper Gold market.

Silver cracked the 10.50 barrier today and held the ground, so far. Follow through tomorrow is essential to any hopes the Silver Bulls may have about a squeeze of the shorts on the CRIMEX. Gold was higher today but met resistance at 835 as it regained 61% of it's October losses from 930 to 680. Gold's recent gains are looking a bit tenuous up here as Bearish Divergence in RSI signal a loss of upward momentum. Given that Gold is at resistance in price and at the top of it's present uptrend this should not appear to alarming, but should give pause to those Gold Bulls looking to add to positions at this time. A retest of the recent break at 815 my be necessary before Gold can move higher...or possibly a test of support at 805.

The Euro's recent launch higher can be attributed to both the ECB's suggestion that further interest rate cuts are not imminent in the Eurozone and the Fed's implied rate cut coming later Tuesday. The apparent collapse of the Dollar's powerful Bear Market Rally this fall has emboldened Gold Bulls, but one must maintain their guard against the evils still lurking at the CRIMEX. Gold has not reacted as strongly to this dump of the Dollar as one would expect. A move higher in the Dollar of 6 points would certainly have mauled the Gold price. It is a bit odd that Gold has not "reacted" higher than it has to such a big move "lower" in the Dollar.

Gold could certainly move higher from here, and do so quickly, based on fundamentals alone. However, given the suggestion that this past weeks moves in the currency and metals markets have been instigated by talk at the ECB and "anticipation" of further interest rate cuts by the Fed today, it would be wise to be on guard that the markets have priced in this information, and the Fed announcement later Tuesday "might" instigate a "sell the news" reaction in the markets, thus fulfilling the warnings of "possible" reactions in the charts posted today.

Gold's weekly bias has turned decidedly Bullish, and all dips in shorter time frames should be considered buy opportunities.

Federal Reserve sets stage for Weimar-style Hyperinflation
...once banks begin finally to lend again, perhaps in a year or so, that will flood the US economy with liquidity in the midst of a deflationary depression. At that point or perhaps well before, the dollar will collapse as foreign holders of US Treasury bonds and other assets run. That will not be pleasant as the result would be a sharp appreciation in the Euro and a crippling effect on exports in Germany and elsewhere should the nations of the EU and other non-dollar countries such as Russia, OPEC members and, above all, China not have arranged a new zone of stabilization apart from the dollar.

The world faces the greatest financial and economic challenges in history in coming months. The incoming Obama Administration faces a choice of literally nationalizing the credit system to insure a flow of credit to the real economy over the next 5 to 10 years, or face an economic Armageddon that will make the 1930's appear a mild recession by comparison.

Leaving aside what appears to have been blatant political manipulation by the present US Administration of key economic data prior to the November election in a vain attempt to downplay the scale of the economic crisis in progress, the figures are unprecedented. For the week ended December 6 initial jobless claims rose to the highest level since November 1982. More than four million workers remained on unemployment, also the most since 1982 and in November US companies cut jobs at the fastest rate in 34 years. Some 1,900,000 US jobs have vanished so far in 2008.

As a matter of relevance, 1982, for those with long memories, was the depth of what was then called the Volcker Recession. Paul Volcker, a Chase Manhattan appendage of the Rockefeller family, had been brought down from New York to apply his interest rate 'shock therapy' to the US economy in order as he put it, 'to squeeze inflation out of the economy.' He squeezed far more as the economy went into severe recession, and his high interest rate policy detonated what came to be called the Third World Debt Crisis. The same Paul Volcker has just been named by Barack Obama as chairman-designate of the newly formed President's Economic Recovery Advisory Board, hardly grounds for cheer.

The present economic collapse across the United States is driven by the collapse of the $3 trillion market for high-risk sub-prime and Alt-A home mortgages. Fed Chairman Bernanke is on record stating that the worst should be over by end of December. Nothing could be farther from the truth, as he well knows. The same Bernanke stated in October 2005 that there was 'no housing bubble to go bust.' So much for the predictive quality of that Princeton economist. The widely-used S&P Schiller-Case US National Home Price Index showed a 17% year-year drop in the third Quarter, trend rising. By some estimates it will take another five to seven years to see US home prices reach bottom. In 2009 as interest rate resets on some $1 trillion worth of Alt-A US home mortgages begin to kick in, the rate of home abandonments and foreclosures will explode. Little in any of the so-called mortgage amelioration programs offered to date reach the vast majority affected. That process in turn will accelerate as millions of Americans lose their jobs in the coming months.

John Williams of the widely-respected Shadow Government Statistics report, recently published a definition of Depression, a term that was deliberately dropped after World War II from the economic lexicon as an event not repeatable. Since then all downturns have been termed 'recessions.' Williams explained to me that some years ago he went to great lengths interviewing the respective US economic authorities at the Commerce Department's Bureau of Economic Analysis and at the National Bureau of Economic Research (NBER), as well as numerous private sector economists, to come up with a more precise definition of 'recession,' 'depression' and 'great depression.' His is pretty much the only attempt to give a more precise definition to these terms.

What he came up with was first the official NBER definition of recession: Two or more consecutive quarters of contracting real GDP, or measures of payroll employment and industrial production. A depression is a recession in which the peak-to-bottom growth contraction is greater than 10% of the GDP. A Great Depression is one in which the peak-to-bottom contraction, according to Williams, exceeds 25% of GDP.

In the period from August 1929 until he left office President Herbert Hoover oversaw a 43-month long contraction of the US economy of 33%. Barack Obama looks set to break that record, to preside over what historians could likely call the Very Great Depression of 2008-2014, unless he finds a new cast of financial advisers before Inauguration Day, January 20. Required are not recycled New York Fed presidents, Paul Volckers or Larry Summers types. Needed is a radically new strategy to put virtually the entire United States economy into some form of an emergency 'Chapter 11' bankruptcy reorganization where banks take write-offs of up to 90% on their toxic assets, that, in order to save the real economy for the American population and the rest of the world. Paper money can be shredded easily. Not human lives. In the process it might be time for Congress to consider retaking the Federal Reserve into the Federal Government as the Constitution originally specified, and make the entire process easier for all. If this sounds extreme, perhaps revisit this article in six months again.
http://www.globalresearch.ca/index.php?context=va&aid=11401